Indian equity markets continue to face significant headwinds, with the benchmark Nifty 50 index delivering a return of -9.55% since the start of 2026, while the BSE Sensex has lost about 11.59% of its value. According to reports from Mint, these performance metrics reflect the combined impact of multiple factors including geopolitical tensions, foreign institutional investor outflows, and recent tax changes. The sustained underperformance has prompted discussions about whether current taxation levels could be influencing relative competitiveness and capital flows.
Since July 2024, equity taxation in India has witnessed significant incremental increases. As reported by Mint, the Long-Term Capital Gains (LTCG) on equities was hiked from 10% to 12.5% for profits exceeding ₹1.25 lakh in a financial year. Additionally, the Short-Term Capital Gains (STCG) rate was increased from 15% to 20% under Section 111A of the Income Tax Act, with changes impacting all transactions after 23 July 2024. The Securities Transaction Tax (STT) on equity futures was raised by 150% to 0.05% and on options by 50% to 0.15% in recent budget measures.
Foreign institutional investors have maintained their bearish stance on Indian equities, resulting in sustained outflows since early 2026. According to market data reported by Mint, outflows for 2026 have exceeded ₹2.1 lakh crore year-to-date, reflecting broader risk aversion towards emerging markets. The trend of heavy FII outflows has continued since late 2024, with India witnessing some of its sharpest monthly outflows in years driven by valuation concerns and global uncertainty.
The US-Israel war on Iran continues to drag on, creating significant headwinds for market performance. As reported by Mint, this geopolitical tension has kept crude oil and commodity prices elevated, resulting in constant pressure on India's import bill and currency stability. These developments have contributed towards a cautious stance among global investors, with flows increasingly rotating towards other emerging and developed markets perceived as less exposed to energy shocks.
According to CA Zubin Billimoria, President of Bombay Chartered Accountants' Society, the recent STT increase is confined to derivatives and does not affect delivery-based cash trades, reflecting policy intent to curb speculation. Akshat Garg from Choice Wealth notes that rising equity taxes are nudging investors to rethink risk and investment horizon, with higher transaction taxes having dampening effects on trading volumes. For retail investors, experts recommend diversifying across different asset classes, cutting unnecessary expenses, and seeking professional guidance to navigate this challenging period.
